The Fiscal Supervision Board (JSF) reported this Thursday that it amended the Adjustment Plan for the Electric Power Authority (PDA-AEE) with the expectation of imposing a more severe cut on bondholders, but this does not detract from “the charge hybrid” that will serve to pay for that financial reorganization and that will be added to the electric bill for the next three decades.
According to the new version of the PDA-AEE and as El Nuevo Día detailed last December, the “hybrid charge” will have a fixed component and a variable component that will be calculated according to the electricity consumption in each home, government entity and business in Puerto Rich.
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The “hybrid charge”, however, will not apply to PREPA’s residential subscribers who receive subsidies nor to municipalities.
Also, the charge would be lower than the one negotiated by the agency in light of the mediation process commissioned by Swain last year.
Instead of the monthly residential fixed charge being around $21 plus the usage charge, it would be around $13.
Most of the small businesses, some 97,000 in Puerto Rico, would have a fixed monthly charge of regarding $16.25 compared to the $20 per month that was traded last year.
While, in the case of the maximum fixed charge that would apply to industrial and large-scale commercial clients, the PDA-AEE bets that it would be around $1,800 per month instead of $2,363 as previously negotiated.
In all cases, with the exception of subscribers who receive subsidies, a variable consumption charge will apply for the first 500 kilowatt hours (kwh) of consumption and also for the excess of the first 500 kwh. That variable charge would start at 0.75 kwh cents for the first 500 kwh of consumption and might go up to three kwh cents for the excess consumption of 500 kwh.
“This plan should reduce the potential burden on the residents and businesses of Puerto Rico more than any agreement that the Board and the government have entered into with creditors,” stressed Board President David Skeel.
“You cannot blame the subscribers for PREPA’s bankruptcy,” added the Bankruptcy Law expert.
According to the Board, for those households that would be subject to the charge and do not receive subsidies, the “hybrid” charge would mean a monthly increase of regarding $19 per month, considering the average residential electricity bill in Puerto Rico.
In a brief interview with El Nuevo Día, Skeel made it clear that the figures in the amended PDA-AEE are not set in stone.
On the one hand, the Board puts its hopes in the litigation to repudiate part of PREPA’s debt.
That path, however, has meant a watershed with the bondholders of the public corporation and, ultimately, would require a favorable ruling by Judge Swain.
On the other hand, any rate adjustment must pass the crucible of the Puerto Rico Energy Bureau (NEPR).
painful but unavoidable
Skeel acknowledged that although the Board has tried to reduce the burden that will fall on PREPA subscribers, this will be “painful” and “inevitable.”
He added that if the Board’s proposal prevails, the proposal on the table must remove PREPA from bankruptcy and leave, in the coffers of that public corporation, sufficient resources to make the necessary improvements and investments so that Puerto Rico has electric service he hasn’t had in decades.
“The charge is painful and it is unfortunate, but it is unavoidable. (Prepa’s) debt cannot simply be eliminated,” Skeel said.
“The (JSF) is fighting to eliminate the debt that we consider invalid. We have a duty to fight to eliminate that invalid debt, but it cannot be eliminated in its entirety,” Skeel acknowledged.
For his part, Antonio Medina, the director of the Board resident in Puerto Rico, assured that the Board has fought “strongly” so that the restructuring of PREPA does not hit homes and businesses on the island too much.
An affordable rate
“Our duty is to make sure that consumers are protected,” Medina said.
“While some might have the perception that their claims should be paid in full or even on top of that, you’ll remember that these bonds haven’t been paid since around 2016, what we’re concerned regarding is the impact on the people. of Puerto Rico,” Medina said.
The former executive director of the Industrial Development Company recalled that Puerto Rico already pays for expensive electricity service.
He explained that what is recommended, according to various studies and even the practice in some states, is that the cost of energy does not exceed 6% of the household budget to be considered an affordable rate.
“There is also the concept of elasticity. The higher the electricity cost, the higher the incentive for subscribers to look for other energy alternatives in the future,” added Medina.
The amendment to the PDA-AEE occurs just when the federal district judge, Laura Taylor Swain, must decide whether to give way to the confirmation process of said debt modification. This implies examining the Informative Declaration of the plan that the Board has proposed on February 28, or putting a stop to said process as PREPA’s main creditors have claimed, in extensive arguments.
The Board was confident that the proposal on the table can be confirmed by Judge Swain.
“Prepa needs to move on from this bankruptcy and focus on serving Puerto Rico’s energy needs,” Skeel stressed.
